Growth: the path between venture capital and private equity
When we talk about investing in private companies, we usually differentiate between two large universes: venture capital, which finances companies in the earliest stages, and traditional private equity or buyout, which is the acquisition of a company, usually with a majority stake, to increase its valuation and subsequently sell it at a higher price. In this case, investments are made in consolidated companies with a positive EBITDA (a financial indicator that measures a business’s profits without deducting debts, taxes, depreciation or amortisation). However, between the two there is a strategy with an identity all its own: growth
Growth is the strategy that invests in companies that have already overcome the phase of greatest uncertainty. This means that they have already proven that their product or service is in demand, they generate recurring income, and they have a validated business model. At this point, the main challenge for funds that invest in these companies is to accelerate their growth.
This is why the capital provided by growth funds is usually employed to tap into new markets, develop new products, expand teams, carry out strategic acquisitions or boost international expansion. It is not about rescuing companies in hard times, but about supporting businesses with high potential that need resources in order to take the next big step.
This type of investment is usually made with a more limited use of indebtedness than in traditional buyout operations. What is more, growth funds often acquire minority stakes, so that the founders and management teams continue to maintain an important role in the management of the company. In terms of risk, growth usually entails a lower risk than venture capital, since companies in the “growth phase” are more consolidated in various ways and, therefore, financially more solid. The positive point is that, apart from posing more moderate risk, they offer significant growth potential, which makes for an attractive balance between risk and return.
As with venture capital and private equity, most growth funds not only provide capital to the invested companies, but also put their experience in strategy, corporate governance, talent acquisition, internationalisation and financing at the service of companies. With all this, they provide the company with high growth potential, competitiveness and, ultimately, the ability to become leading companies in their respective sectors.
As companies mature and evolve positively in all respects (especially in terms of financial consolidation), these companies begin to be candidates for investment by traditional private equity funds. At this stage, funds seek to generate value through operational improvement, process professionalisation, organic growth or acquisitions. Subsequently, the investment can be implemented through the sale to another fund, to an industrial company or, in certain cases, through an IPO
Diari d’Andorra, 09.09.26
